IS

Strategic Analysis, L6

Introduction to the Virgin Group

  • Overview: The Virgin Group operates diverse businesses across seven categories: Travel and Leisure, Health and Wellness, Music and Entertainment, Money, Technology, People and Planet, and Space.

  • Business Range: Includes airlines, mobile telephony, financial services, music festivals, casinos, and more.

  • Global Footprint: Employs around 69,000 people and has $22bn in revenues across over 50 countries.

  • Richard Branson's Influence: Branson is a central figure in the brand's growth, with a strong public persona that has contributed to Virgin’s strong brand image.

Virgin's Origins and Entrepreneurial Style

  • Founding: Branson started with a student magazine at 15, later transitioning to selling records in 1970. The name "Virgin" reflects his business inexperience.

  • Expansion: Transitioned from mail-order music to opening physical stores and recording music; notable successes include signing Mike Oldfield and the Sex Pistols.

  • Philosophy: Branson embraces risk-taking combined with strategies to limit potential losses, influenced by early lessons from his father's support.

Growth and Diversification of the Virgin Brand

  • Rapid Expansion: Over 500 companies have been overseen by Branson as chair, with strategic movements into diverse sectors since the 1990s.

  • Market Adaptation: The Group capitalizes on opportunities created by changes in legislation and technology, such as entering the mobile telecom market post-deregulation.

  • Industry Leadership: Virgin expanded to healthcare and gained prominence in the NHS with its acquisition of Assura Medical, now Virgin Care.

Corporate Structure and Strategy

  • Structure: The Virgin Group is described as an innovative investment group with independent SBUs, operating separately to foster entrepreneurial spirit.

  • Vision and Growth: Branson emphasizes that companies should succeed within a year; if not, they exit. The branding embodies customer-centric values regarding quality and service.

  • Management Philosophy: High trust placed in managers encourages accountability; Branson advocates for finding capable leaders for day-to-day operations.

Financial Overview and Future Considerations

  • Financial Structure: Virgin Group’s finances appear inconsistent, heavily reliant on royalties from external stakes while growing predominantly in healthcare and innovative ventures.

  • Challenges: Virgin Atlantic faced significant struggles during the pandemic; however, it attempted recovery through innovative sustainable fuel uses.

  • Future Aspirations: Virgin Galactic and Virgin Orbit aim to dominate space tourism and launch services; their progress could redefine the brand's future, despite occasional financial setbacks.

Conclusion

  • Brand Identity: The Virgin brand symbolizes a fun and value-driven ethos, maintaining its appeal even amidst leadership transitions.

  • Market Perception: Opinions vary on the sustainability of Virgin’s corporate model post-Branson; however, its ability to adapt and innovate suggests potential for continued success.

The corporate strategy of the Virgin Group is characterized by several key elements:

  • Innovative Structure: The Virgin Group operates as an innovative investment group with independent Strategic Business Units (SBUs), allowing for entrepreneurial spirit and diverse operations.

  • Vision for Growth: Richard Branson emphasizes that companies within the group should succeed within a year; if they do not, they exit the portfolio. This highlights a focus on growth and performance.

  • Customer-Centric Approach: The brand embodies customer-centric values that prioritize quality and service, which is essential for maintaining its competitive edge.

  • High Trust in Management: The Group places high trust in its managers, fostering accountability and encouraging capable leaders to manage day-to-day operations effectively.

  • Market Adaptation: Virgin adapts to market changes by capitalizing on opportunities created by new legislation and technological advancements, such as the mobile telecom market post-deregulation.

  • Diversification and Expansion: The company has rapidly diversified into various sectors since the 1990s, overseen by Branson, demonstrating a proactive approach to market opportunities.

Corporate Strategy

  • Why is growth important?

    • the survival rate of above GDP growing companies is higher than the ones that are below GDP growth (simply just for survival reasons)

    • shouldn’t just grow in shareholder(dividends), but find a balance btw TSR growth & revenue/Sales growth

    • performing well across different aspects of growth(growth giants) is almost a guarantee to survive in the future

    • performing well in one of the ratios doesn’t promise a certain future

  • Sustainable pace of growth: which investment priorities?

    • Low ROIC: should focus on activity(more conservative, need sustainable focus than rsik spreading their focus too thin)

    • High ROIC: should diversify even more(more aggressive)

    • Example of order of action for more growth: selling assets-refocus on activities-diversify

  • Scope of portfolio(how much of diversification):

    • related diversification

    • unrelated diversification

    • re-specialisation`

  • Portfolio balance(where to put money into?), 3 possibilities:

    • too old

    • balanced

    • too young

      → Cash cows, stars, question marks?

Parenting logic(how can the parent add value?)

  • portfolio manager(mostly private equity)

  • Synergy manager (only for related diversification:Apple with Iphone, Icloud, Appstore)

  • parental developer(strong central capabilities applied to a big variety of firms)

    → a lot of companies combine up to two parenting roles (mostly for related diversification)

  • For trump: portfolio manager & parental developer

Application:

Describe Virgin’s specialisation/diversification

unrelated diversification,(by customers & by product/service technoogy & geography)

Did Virgin Group engage in re-specialisation

their core activity/core engine is brand royalties, from other firms acquiring businesses &using Virgin brand, invest in promising new business+sell stakes in maturing businesses

Parental logics of Virgin

portfolio manager(lots of investment, divestment in unrelated businesses like financially&strategically p

parenting capabilities (david vs goliath, public relations and marketing skills:he went to NY timessquare in tank full of cocacola softs), What industries, customer has traditionally had a poor deal and where competition is complacant

Is portfolio too old?balanced? or too young?

portfolio seems quite balanced (stars: virgin care, holiday, trains - questionmark: space - cash cow: licensing/sales of stakes in Virgin brand - Dogs: Virgin Atlantic)